Indian Institute of Management

Ranchi

PGP
INTERNATIONAL FINANCE
COURSE OUTLINE
TERM VI – YEAR, 2017-18

Instructor and Contact Information

NAME: T S SRINIVASAN
E-MAIL : [email protected]
OFFICE: ACADEMIC BLOCK
PHONE : 91767-69037

COURSE DESCRIPTION

With the growing integration of the world economy, firms increasingly operate
across national boundaries and are exposed to risks, as well as opportunities,
arising from currency, country, interest rates and other related factors. There is a
growing need to understand these risks and opportunities, as well as the products
that have emerged to manage the risks.

COURSE OBJECTIVE

This course is meant to provide such understanding and to make students aware
of the following :

 Why exchange rates behave the way they do

 The nature of currency risk and the products available to manage that risk
 The nature of interest rate risk and the products available to manage that
risk
 The opportunities and risks associated with raising funds abroad, and
 The opportunities and risks associated with investing abroad

COURSE LEARNING OUTCOMES

By the end of the course the student should be able to:

1. Make sense of currency movements and their impact on corporate
performance
2. Make sense of developments in the world economy and their impact on
exchange rates, interest rates, and on global business.
3. Show a reasonable understanding and appreciation of the products that
have emerged to manage currency and interest rate risk
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4. Show a reasonable understanding of the opportunities and problems
associated with raising and investing funds abroad

ALIGNMENTS OF INTENDED PROGRAM & COURSE LEARNING OUTCOMES

Sn. Programme Objectives (fixed) Course Learning (CL)

outcomes
1 To acquire knowledge and skills in key functional
CL 1
areas
2
To internalize the knowledge and skills in key CL 2,3 & 4
functional areas
3 To integrate and apply business knowledge CL 2,3 &4
4 To develop a global perspective CL 2
5 To inculcate values of professionalism, ethical All
leadership and social responsiveness
6 To master relational and interpersonal Class discussion
communication skills

REQUIRED COURSE MATERIALS AND READINGS

TEXTBOOKS

1 Multinational Business Finance by David Eiteman, Arthur Stonehill and Michael

Moffett, Pearson Publications ( latest available international edition ).
2 Cases in International Finance by Mihir Desai, Harvard Business School Press

EVALUATION

 Exams: There will be one examination.

 Group Project Report: Details will be provided in the class
GRADING SCHEME

Component Percentage
1 Case Submission (Group work) 20
2 Foreign exchange game ( Group work ) 20
3 Mid-term Exam 25
3 Final exam 35
4 Total 100

ACADEMIC DISHONESTY

Academic dishonesty or misconduct is cheating that relates to an academic

activity. It is a violation of trust between the Institute and its stakeholders.
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Plagiarism, fabrication, deception, cheating and sabotage are examples of
unacceptable academic conduct. Please consult the PGP Manual for the section
on academic dishonesty

COURSE SCHEDULE

Work Plan ( 20 sessions of 90 minutes each )

Topic Approx. Assigned chapter / s from the
number of sessions prescribed text book. Cases for
comprehensive written analysis
and submission will be separately
announced.
1 Introductory Session 1 Financial Goals and corporate
Session Governance
Mini case : Zimbabwe Descends
into Chaos
Sub-topics :Financial management. in a global company , Understanding the
pre-eminence of the US Dollar, Exchange rates and purchasing power
differences, Understanding why the Indian Rupee is not in the top league of Assessment
currencies, Should a purely domestic company worry about currency risk? of individual
Understanding the nature of country risk sessions will
2 Exchange Session 2 The foreign Exchange Market be on the
Markets and basis of
Exchange Rates quality of
discussions
Sub-topics: The nature and size of the foreign exchange market, Major players, and end of
Types of transactions, Speculation in the foreign exchange market, Quoting session
conventions, Sources of demand for foreign exchange, Sources of supply of quizzes
foreign exchange, Locational Arbitrage, Triangular Arbitrage, Covered Interest
Arbitrage,
3 The Behaviour Sessions 3 to 5 International Parity Conditions
and Forecasting Foreign Exchange Rate
of exchange Determination
rates
1 President Lectures the Foreign
Exchange Market
2 Warren Buffet offers a solution
to the US Trade Deficit
Sub-topics : A way of thinking about exchange rates, Medium term triggers for
exchange rate movements, The Fisher Theorem, Interest Rate Parity.
Purchasing Power Parity, International Fisher Effect, The Expectations
Theorem, Key determinants of exchange rate movements, Nominal and Real
Exchange Rates, Adjustment process in fixed and floating rate regimes, The
unholy trinity in macro-economics
4 Currency Risk Sessions Transaction Exposure, Operating
Management 6 to 9 Exposure and Accounting
Exposure
Mini Cases
1 Heavy Machines
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2 Whaler Publishing
Sub-topics: Transaction Exposure, Translation Exposure, Economic Exposure,
Natural Hedge, Forward Cover, Currency Swaps, Futures, and Options,
Currency Risk Matrix, Designing a currency risk management system, Lessons
from the real world
5 Currency Session Foreign Currency Derivatives
Futures 10
Sub-topics: Forwards and Futures, the margin system, rupee dollar futures on
the NSE, Using currency futures for speculation, Using currency futures for
hedging, the optimal hedge ratio, convergence of spot and futures prices, basis
risk.
6 Currency Sessions 11 and 12 Foreign Currency Derivatives
options
Sub-topics : Options and flexibility, intrinsic and time values, European and
American style options, using currency options for speculation, using currency
options for hedging, the relevance of options in situations of global bidding
7 Euro currency Sessions 13 and 14 Euro-Currency Markets
markets Mini Cases:
1 Galaxy Electricals
2 Reliance Industries
Sub-topics : The concept of euro-dollar, origins of the euro-market, major
stimuli for its rapid growth, syndicated loans, syndicate structure, elements of
pricing, euro bonds, foreign bonds, global depositary receipts ( GDR), American
Depository receipts ( ADR), advantages to issuer and to investor, Qualified
Institutional Placement, Indian involvement in the Euromarkets
8 Managing Interest rate risk Sessions Interest Rate and Currency Swaps Assessment
15 and 16 of individual
sessions will
Sub-topics : Interest rate volatility , need to manage interest rate risk, fixing the be on the
rate of interest, fixing the maximum rate of interest, forward rate agreements, basis of
interest rate swaps, interest rate caps, floors and collars, swaptions, interest quality of
rate futures, yield curve theories discussions
9 International Session 17 Global Cost and Availability of and end of
Cost of Capital Capital session
Sourcing Equity Globally quizzes
Mini Cases
1 Novo Industries
2 Zenith Company
Sub-topics : WACC and hurdle rates, world CAPM, need to use appropriate
discount rates for different segments of the value stream, globalizing the cost of
capital and capital structure, factoring systematic and unsystematic risk in
international capital investment
10 International capital Session Multinational Capital Budgeting
budgeting 18 Mini Case : Euro Disney
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Sub-topics: Parent’s and project’s viewpoints, Forecasting exchange rates for
converting foreign currency cash flow, Using the Adjusted Present Value
approach, , Host government incentives, Growth options, Dealing with political
risk and risk of expropriation
11 International Session Working Capital Management in the Assessment
Current Asset 19 MNE of individual
Management Mini-Case : Honeywell and Pakistan sessions will
International Airlines be on the
basis of
Sub-topics : Managing current assets in an international context, currency and quality of
country risks, Exposure netting, International currency centres, Re-invoicing discussions
centres and end of
12 Summing Up and Session 20 No assigned material session
Integration quizzes
Total 20 sessions
About the Instructor ( Prof T S Srinivasan )
Has been Visiting Professor at the Indian Institutes of Management in Lucknow, Kashipur
Sirmaur and Trichy. Formerly Professor at the International Management Institute, at
Delhi and at Kiev, Ukraine. Over thirty years of experience in management education and
training, starting with XLRI, Jamshedpur, and including industrial experience as Director,
Oberoi School of Hotel Management, Delhi, and Senior Faculty Member, at SAIL's
management training centre at Ranchi. An alumnus of the Indian Institute of
Management, Ahmedabad, where he won the Hindustan Lever award for scholastic
performance. Joint author of a book on International Finance.